International trade TRENDS AND INSIGHTS December 2019 Large Law Firm of the Year
New Zealand Law Awards 2019
New Zealand Deal Firm of the Year
Australasian Law Awards 2019
New Zealand Contentious Firm of the Year
Managing IP Asia-Pacific Awards 2019 Contents
Trading in turbulent times...... 2
The world economy ...... 3
Dispatches from the trade war...... 4
Brexit update...... 9
Heat on Iran...... 10
Trends and signs of fair weather...... 11
Making sense of it all...... 20
Chapman Tripp’s international trade specialists...... 21
International trade TRENDS AND INSIGHTS December 2019 HOME 1 Trading in turbulent times
After a long period of relative stability and growth in global trade, the future is looking increasingly uncertain. A confluence of factors have come together to define and shape the global economy in the early years of the 21st century and the result is a turbulent present and uncertain future.
The situation was succinctly expressed by Prime Minister of Singapore Lee Hsien Loong at the 74th Session of the United Nations General Assembly on 27 September 2019:
“Today, there is a strong pushback against an open, integrated global economy. The view that globalisation and free trade have worsened inequality has grown. But in truth globalisation and free trade have improved the lives of billions of people around the world … a fragmented world with less growth and prosperity will create markets and create tension and instability in the international system.”
In this year’s edition of International trade – trends and insights, we canvass developments in 2019 and consider what we can expect in 2020. The macro picture at the global level is one of continued uncertainty and disruption. But we shouldn’t forget there are also positive stories, with New Zealand exporters continuing to do incredible things on the world stage. We profile some of those here.
International trade TRENDS AND INSIGHTS December 2019 HOME 2 The world economy
The world economy has not yet sunk into recession The IMF has trimmed its growth forecast for 2020 but all the major forecasters – the World Bank, to 3.4%, while WTO economists are forecasting that the Organisation for Economic Cooperation and world merchandise trade volumes will rise only 1.2% Development (OECD), the World Trade Organisation this year and 2.7% next year – down from previous (WTO) and the International Monetary Fund (IMF) – forecasts of 2.6% and 3.0% respectively. have cut their growth forecasts back to the weakest levels since the 2008-2009 global financial crisis.1 While the IMF report the services sector has so far continued to hold up across the world, a number of There is a considerable uniformity of view with the recent surveys in Europe and the United States (US) IMF talking about a “synchronised slowdown” as point to a worldwide contraction in manufacturing, demand for capital goods and investment wilts under which is starting to spill over into domestic demand higher tariffs and the uncertainty generated by the for services. trade war. A joint Brookings Institute/Financial Times publication goes further and talks of “synchronised As a small, export dependent country, New Zealand stagnation” as: is particularly vulnerable to global economic shifts. Fortunately, commodity prices for our key exports “persistent trade tensions, political instability, have remained reasonably strong to date despite geopolitical risks, and concerns about the limited global uncertainty but3, if the world economy slows efficacy of monetary stimulus continue to erode down, we will likely feel the impact as slower growth in business and consumer sentiment, holding back a key market like China equates to lower demand for investment and productivity growth”.2 imports from New Zealand.
Real GDP growth Annual percent change
Emerging market and developing economies
Advanced economies
World
1 Financial Times, “Trade wars are pushing the global economy to the brink”, The Editorial Board, 5 October 2019. 2 See: https://www.brookings.edu/research/october-2019-update-to-tiger-sliding-into-synchronized-stagnation/ 3 Business NZ, “Planning Forecast”, September 2019: www.businessnz.org.nz/__data/assets/pdf_file/0007/178783/190923-Sept-2019-Planning-Forecast.pdf
International trade TRENDS AND INSIGHTS December 2019 HOME 3 Dispatches from the trade war
The trade war began in 2017 when a US International At the start of 2019, more than half of Chinese Trade Commission’s investigation found that imports exports to the US, worth US$250b, were subject to of Chinese solar panels had caused injury to American tariffs upon entry to the US. These had been imposed solar panel market and producers. This was followed in two tranches set at 25% – the first on US$36b by a similar report on washing machines, and then of goods, the second on US$16b – during 2018 by the imposition of tariffs on imports of both following release of the ‘section 301’ report by USTR. products in early 2018. China responded with tariffs Subsequently, there was a third tranche on US$200b on American sorghum, setting in place a pattern of of imports set at 10%. escalating action that would continue to be seen in other contexts – the Department of Commerce’s China reacted to the 2018 tariffs by imposing its own ‘section 232’ report on steel and aluminium imports, ‘retaliatory’ tariffs on US$110b of imports from the and the United States Trade Representative (USTR)’s US (and reducing tariffs from other countries). ‘section 301’ report finding that China was engaging in unfair trade practices related to technology transfer, intellectual property and innovation.
US-China trade war tariffs: An up-to-date chart Updated on October 11, 2019
Average tariff rate, percent . .
+8.6pp in six months . eight months « .8pp in . six months +11.1 pp in three months . . . eight months . China’s tariffs on US exports . +8.2pp in . three months . six months . . . . US tariffs on Chinese exports . . six months . . . .
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Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan
pp = percentage point Note: Trade-weighted2018 average tariffs computed from product-level (6-digit Harmonized2019 System) tariff and trade data, weighted by exporting country’s exports to the world in 2017. Source: US-China TradeFebru Warary 7 Tariffs: An Up-to-Date Chart from PIIE Charts, by ChadJanua P. Bown,ry 1 originally published by the Peterson Institute for International Economics, on October 11, 2019. (www.piie.com/research/piie-charts/us-china-trade-war-tariffs-date-chart).China suspends retaliation against US autos and parts washing machines
March 23 February 8 International trade TRENDS AND INSIGHTS washing machines in second year of policy December 2019 April 2 HOME 4 June
May 1 US products (subset of $60 billion, June 1)
July 1 July 1
products September 1 July 6 and China's retaliation on some US products (subset of retaliation ($34 billion) $75 billion)
August 23 September 17 China implements product exclusions on less than $2 retaliation ($16 billion) billion of US exports from $34 billion and $16 billion lists
September 24 December 15
retaliation ($60 billion) and China's retaliation on some US products (subset of $75 billion) and re-imposition of suspended retaliatory November 1
#PIIECharts Learn more at piie.com/research/piie-charts
pp = percentage point; MFN = most favored nation
Note: and trade data, weighted by exporting country’s exports to the world in 2017.
Source: Updated on October 11, 2019, using data from Chad P. Bown's blog post, "US-China Trade War: The Guns of August." The US tariffs in 2018 initially • China announced retaliation Meantime, China has tried to targeted intermediate inputs with tariffs on $75b of imports win the PR battle through the and capital equipment used by from the US to mirror the publication in eight languages of American-based companies, then two-stage US rollout, on a White Paper which emphasises moved to include more consumer products including crude oil, that, in its view, the source of the goods. Retaliatory Chinese tariffs soybeans, pork, chicken, wheat, trade war is the US, “In response went in the other direction – sorghum, cotton and other to the economic and trade friction beginning with agricultural and farm products. China also unilaterally initiated by the US food products (including soybeans, announced tariffs of 5% and since March 2018, China has had seafood, fruit and nuts, pork, and 25% on US-made vehicles to take forceful measures to dairy), petroleum products and and auto parts. defend the interests of the nation medical equipment then shifting and its people.” to also cover intermediate inputs The US tariffs have been and capital equipment. accompanied by non-tariff In between the tariff measures, including: announcements, there have been The sniping has continued 13 rounds of negotiations between this year: • pressure on its allies to boycott US and Chinese trade officials, Huawei, which the US accuses on-again, off-again meetings • in May, the US raised the 10% of breaching sanctions against between Presidents Trump and tariff on $200b of imports to Iran and stealing US technology Xi, wildly shifting probabilities 25% and in August, President around the prospect of a deal, • tightening US visa Trump announced that tariffs exclusion processes in the US to requirements for Chinese on all $250b of imports allow exemptions from some from students and scholars, and would increase to 30% on 15 the tariffs, and – throughout it all – October 2019 • blacklisting 28 Chinese a chaotic tweet commentary from entities4 with the effect that President Trump. • also, in August, President US suppliers need to obtain Trump announced a 15% tariff a special licence to continue on an additional $300b of selling American-made goods commonly imported household to them. items from China to be rolled out in two stages before the end of the year. Application to toys, smartphones and other consumer electronics has been held back until after the holiday shopping season, and
4 K. Stacey and J. Politi, “US blacklists 28 Chinese entities in latest trade war escalation”, Financial Times, 7 October 2019: www.ft.com/content/2a40927e-e946-11e9-a240-3b065ef5fc55
International trade TRENDS AND INSIGHTS December 2019 HOME 5 Dispatches from the trade war (continued)
A truce? The fallout from the war
On 11 October 2019, the US and China announced a In addition to its contribution to the predicted global ‘truce’, and a limited ‘phase one’ trade agreement. economic slowdown and the associated income effects in third party countries such as New Zealand, First indications were this agreement might be at the trade war also has the potential to cause least moderately significant, involving undertakings substitution effects as countries become more or less by China to buy up to $50b of US agricultural competitive, leading to changing patterns of supply products, and commitments on intellectual property and demand. rights, financial services, biotechnology and phytosanitary issues. Vietnam, for example, is selling more steel into the US because the latter’s tariffs against Chinese steel have It has subsequently emerged, however, that made it less competitive in the US market. And the the agreement is more limited, involving: US tariffs on apparel from China have made Chinese clothes manufacturers wary about buying New • a commitment to continue negotiations towards a Zealand fine wool because they cannot be sure they phase one deal (which presumably could cover the will be able to sell the finished product.5 subject areas noted above), and Just as significant is the risk that, if the trade war • a commitment by the US to cancel the proposed 15 continues, and the US and Chinese economies October tariff increases. become increasingly decoupled, other countries will Tariffs already in place are unaffected to date be squeezed and may, at some point, have to choose and the second tranche planned by the US for 15 between the two powers. December might still go ahead – even if the ‘truce’ holds. More broadly though, a question remains as to This would create an excruciating dilemma for whether things might settle down, at least until after New Zealand, given China is our largest trading the 2020 US presidential election. partner and the US our third largest.
5 Radio New Zealand, “New Zealand wood industry clipped by China-US trade war”, 20 August 2019: www.rnz.co.nz/news/country/397064/new-zealand-wool-industry-clipped-by-china-us-trade-war
International trade TRENDS AND INSIGHTS December 2019 HOME 6 Can the centre still hold?
The international ‘rules-based order’ is under As economist Jeffrey Sachs told the audience at the stress. This is in the economic sphere by the WTO WTO Public Forum this year: Agreements. But this should not be equated with an assumption that the system is no longer relevant, or “If you want to know what it would be like without the that it is facing imminent collapse. trading system, revisit the 1930s. The trading system collapsed. World peace collapsed. We had one of the There is no one single cause of the stress. Primary great disasters of history. We are totally dependent factors are that the WTO’s Appellate Body (AB) on open trade to have a chance for 7.7 billion people is shortly to become inoperative due to conflict to live decently, even to live, on this planet. Food is over its operation, and a continued failure by traded. Energy is traded. Basic technologies are members to modernise the broader rulebook to traded. Medicines are traded. There would be no address new issues such as digitalisation, climate chance for viability in this world if the trading system change, sustainable development, and making trade collapses. Every amenity that we have, starting with more inclusive. our morning coffee, would be impossible without the international trading system.” There are pressure points at the margins too. In particular a new US focus on bilateral negotiations, Kevin Rudd, Helen Clark and Carl Bildt (Sweden), on although to date only one agreement has been behalf of a group of 10 former leaders of governments concluded (with Japan), and an increasing tendency that have enjoyed close relations with both the US and for countries to claim a national security justification China, wrote to Presidents Trump and Xi in October for breach of WTO rules. The US is most identified urging them to recognise how much is at stake. The with this, but Japan has also used it to justify export letter said that the WTO: restrictions against South Korea on chemicals vital to Korea’s electronics industry. Many doubt the validity “despite its limitations, is best positioned to address of the national security justification, given the action China’s trade practices. We also believe that the WTO follows a spike in tensions between Japan and South is the most appropriate forum in which to resolve Korea over unresolved historical grievances. trade disputes. So we urge the United States and China to work with other member states to strengthen The rules-based system is of utmost importance the WTO’s institutional capacity”. to New Zealand (and other small and medium-sized nations), particularly in the face of a slowing global New Zealand has successfully used the WTO’s dispute economy and rising nationalism. A world where the resolution mechanism on a number of occasions and legal rules and processes we rely upon to advance and it gives our exporters a level of comfort that the defend our legitimate trade interests are subordinated government has their back should markets be closed to power politics is a dangerous place to be. to them. It is true each of our free trade agreements (FTA) contains its own dispute settlement mechanism, but the unspoken expectation has always been the WTO process will be used instead. Should the WTO dispute settlement mechanism become dysfunctional, there will be no real certainty the FTA provisions can be successfully invoked, which in turn increases uncertainty for business.
International trade TRENDS AND INSIGHTS December 2019 HOME 7 What is the Appellate Body crisis?
As of 10 December this year, the WTO Appellate Body (AB) will have insufficient members to hear an appeal. It should normally have seven members, each appointed for a four-year term, with the possibility of reappointment for a further term. It is now down to only three members because, since 2017, the US – citing concerns with the approach the AB has taken – has blocked the reappointment or appointment of members. Some of the US concerns go back to the early 2000s and range from the technical (e.g. the AB’s consistent failure to comply with the 90-day deadline for appeals) to the more fundamental (e.g. a tendency to add to or diminish the rights and obligations of the parties).
New Zealand’s Permanent Representative to the WTO, Ambassador David Walker, was appointed at the beginning of this year to facilitate an informal process to review and address the US concerns.
Meantime, some members are applying their own solutions. The European Union (EU) has entered into interim appeal arbitration arrangements with Canada and Norway which will apply to all disputes between the EU and those countries in the event the AB is unable to hear appeals. In a more ad hoc solution, Vietnam and Indonesia agreed that they will accept the panel report as the final word in relation to a dispute between them6, which means it cannot be put on hold by one side appealing to a non-operational AB. Whether other countries will join the EU, or make their own arrangements like Vietnam and Indonesia, remains to be seen.
6 Indonesia – Safeguard on Certain Iron or Steel Products (DS496), Agreed Procedures under Articles 21 and 22 of the Dispute Settlement Understanding between Indonesia and Vietnam.
International trade TRENDS AND INSIGHTS December 2019 HOME 8 Brexit update
On 23 October, UK MPs voted 329 to 299 in favour of Less than one week later, on 28 October 2019, the EU Prime Minister Boris Johnson’s 110-page Withdrawal allowed for an extension until 31 January 2020 but said Agreement Bill. The Bill sets out arrangements for that the UK could leave earlier if a deal was approved Northern Ireland, namely it would remain in the UK’s by Parliament, the so-called “flextension”. Johnson customs territory. However, goods and agrifood trade followed this with a vote calling for a December general between Northern Ireland and the EU will be covered election. MPs voted by 299 to 70 in favour of holding by EU customs rules and will follow EU single market the election, although it was 135 short of the two-thirds regulation. The Bill also has the potential to complicate majority required by the Fixed-Term Parliaments Act. trade negotiations with other countries as the UK has Johnson subsequently unveiled a “Plan B” to trigger a not yet agreed the terms of post-Brexit trade with general election: publishing a bill that would only need several countries that have FTAs with the EU. The Bill a simple majority to succeed and that would allow for a would allow Northern Ireland to maintain duty-free general election on 12 December 2019. MPs voted 438 access to goods from those countries that might be to 20 a day later in favour of the 12 December election subject to tariffs in the rest of the UK. bill. It is likely Conservatives will campaign to get Brexit done by pushing through Johnson’s deal, while Labour is Just 20 minutes after the vote, MPs rejected the promising a second referendum. Government’s timetable for the Bill. Johnson was then required to send a letter to the EU requesting Uncertainty around Brexit has impacted global a Brexit extension, though this letter, unsigned, was markets, and in particular, exporters. For example, supplemented by a signed letter detailing why the EU lamb exports to the UK from New Zealand were down should not grant the request. by about 23% compared to last year.7
7 Radio New Zealand , “NZ lamb exporters welcome Brexit deadline extension”, 29 October 2019: www.rnz.co.nz/news/country/402020/nz-lamb-exporters-welcome-brexit-deadline-extension
International trade TRENDS AND INSIGHTS December 2019 HOME 9 Heat on Iran
US sanctions on Iran have had a chilling effect on Also, Iranian banks have been designated as trade with Iran in 2019. The sanctions are the toughest sanctioned individuals and the US has taken ever imposed on Iran, and they target critical sectors aggressive enforcement actions. Moreover, frequent of that country’s economy such as energy, shipping, tweets by President Trump indicating plans to shipbuilding, and finance. “substantially increase sanctions on Iran” mean even trade that is legal, will likely not logistically be There are some carve outs: there is no prohibition possible as insurance companies and banks will be on trading non-sanctioned New Zealand goods even more resistant to facilitating such trade. with non-sanctioned Iranian persons, and there is a “humanitarian exception” to facilitate the sale of It is difficult to see the situation changing agricultural commodities, food, medicine or medical significantly any time soon, but if and when it does, devices to Iran. Iran undoubtedly still represents a potentially exciting market for New Zealand exporters. Nevertheless, international and domestic banks, insurers and transport companies have been hesitant to facilitate any transactions. This is in part because the US regime includes secondary sanctions that may apply to non-US persons (including New Zealanders or New Zealand companies), which the US is enforcing as aggressively as the primary sanctions it imposes on its own nationals.
International trade TRENDS AND INSIGHTS December 2019 HOME 10 Trends and signs of fair weather
As we look back at 2019 and forward to 2020, it is not all doom and gloom. There have been success stories, and a number of positive and exciting developments.
Foremost among these has been the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). And on 4 November, agreement was reached on the text of the Regional Comprehensive Economic Partnership (RCEP). These two agreements are important both for the boost they can provide to businesses trading within regions, but also for the signal they send about the ongoing importance of countries working together to develop rules and a basis for cooperation.
International trade TRENDS AND INSIGHTS December 2019 HOME 11 Trends and signs of fair weather (continued)
Digitalisation NZ-China FTA upgrade
Digital trade continues to be a WTO E-commerce Initiative: 76 New Zealand and China concluded key story in international trade. WTO member states (including negotiations for an upgrade of the The very term ‘digital trade’ is New Zealand), accounting for 2008 Agreement between them. an evolving concept. It captures 90% of world trade, agreed in The upgrade includes improved not just internet shopping and Davos earlier this year to launch market access for goods (various the supply of online services negotiations on trade-related wood and paper products) and (e-commerce), but also data aspects of e-commerce with services (including environmental flows that enable global value the goal of creating a new WTO and airport operation services), chains, services that enable smart agreement.8 This would include and new rules to facilitate the manufacturing, and a myriad of guaranteeing the validity of free flow of goods, including in other platforms and applications. e-contracts and e-signatures, relation to technical barriers permanently banning customs to trade, customs procedures It is New Zealand’s third duties on electronic transmissions, and rules of origin. For example, biggest revenue earner, having improving consumers’ trust and New Zealand exporters to experienced faster growth combatting spam. China will now benefit from a over the last decade in terms of guaranteed six-hour clearance contribution to Gross Domestic Digital Economy Partnership time for perishable goods such Product (GDP) than any other Agreement: New Zealand is as seafood and assurance OECD country. New Zealand now negotiating with Chile and these kinds of goods are stored has 29,000 tech firms with nearly Singapore to establish new appropriately. China will also be 100,000 employees contributing international rules and best required to provide better access $16.2b to GDP and producing practice for supporting and to information about customs $6.3b in exports. promoting trade in the digital laws and regulations, as well as era. As well as building on identifying contact points at key This means our interest in existing rules on e-commerce, ports so exporters can address ensuring international trade the negotiations will look at any problems. rules are updated to deal a range of emerging digital with the challenges created economy issues and subject areas, Some specific irritants for by digitalisation has a strong including cross-border data flows, exporters have been addressed, commercial basis. But we have just digital identification, artificial such as China’s requirement as strong an interest in ensuring intelligence, cybersecurity, and that cosmetics be tested on that those rules are appropriate open data. animals. The upgrade establishes and adequately address the mechanisms for New Zealand enormous social implications of and Chinese officials to discuss increased data flows. New Zealand alternatives that will allow trade in has become part of two relevant this sector. efforts in 2019.
8 European Commission, “76 WTO partners launch talks on e-commerce”, 25 January 2019: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1974
International trade TRENDS AND INSIGHTS December 2019 HOME 12 Trends and signs of fair weather (continued)
Regional Comprehensive Economic Partnership
Chinese investors in services On 4 November, leaders of the The deal has been criticised sectors covered by the FTA 16 countries negotiating the for a lack of real ambition and will now benefit from an RCEP announced the completion belonging to an earlier stage of increased screening threshold of negotiations on the text and development based on the export for investments in significant agreement on nearly all market of cheap goods. For New Zealand, New Zealand business assets. access issues between 15 the (hopefully temporary) absence These investments will only countries. India is the missing link. of India certainly diminishes the require screening under the Its reluctance to join is due in large potential economic gains. But, Overseas Investment Act if they part to concerns about the impact to focus on the negative would exceed $200m (rather than the to its producers of increased be to overlook the benefits of $100m threshold otherwise imports of manufactured Chinese simplification of arrangements provided for in the Act). goods, as well as New Zealand and now that the large number of Australian agricultural products. agreements between Association New Zealand has made India could still join later; leaders of Southeast Asian Nations changes to the 800 annual visa said in their statement that “all (ASEAN) member and other places allocated to Chinese RCEP participating countries countries have been stitched professionals. Increases have will work together to resolve the together, and the potential for been made to the number of outstanding issues in a mutually further integration over time visas for Chinese tour guides, satisfactory way”. among the member countries. The Mandarin teaching aides, and importance of symbolism should a corresponding decrease not be overlooked either. In these in less utilised categories turbulent times, the tenacity of such as traditional Chinese the participating countries in medical practitioners. persevering to reach agreement on common rules to bind them all There are also new chapters on should not be overlooked. e-commerce, environment and trade, competition policy and government procurement.
The agreement is expected to be signed in early 2020.
International trade TRENDS AND INSIGHTS December 2019 HOME 13 Trends and signs of fair weather (continued)
Climate change Enabling resolution of and trade international disputes
Chapman Tripp has long An unfortunate inevitability of • The United Nations Convention advocated9 that FTAs can be an business is that disputes will on International Settlement instrument for climate change arise. Thanks to the New York Agreements Resulting from mitigation so we welcome the Convention, it has been possible Mediation (the Singapore negotiations, entered recently by since 1958 to enforce an arbitral Mediation Convention) has New Zealand, Fiji, Norway, Iceland award obtained in one member been signed (but not yet and Costa Rica on an Agreement country across the other 159 ratified) by 51 countries, on Climate Change, Trade and member states. including the US, Singapore, Sustainability (ACCTS). China, India, and South Korea. The intended scope of the Settlements following mediation This provides a process ACCTS is: and court judgments have been under which a party seeking much more difficult to execute enforcement of a cross • the elimination of tariffs in other jurisdictions but two border settlement agreement on environmental goods developments this year will resulting from mediation may and new commitments on hopefully improve the position. apply directly for execution to environmental services the courts of the jurisdiction • The Hague Convention on the where the other party’s assets • disciplines to eliminate fossil Recognition and Enforcement are located. fuel subsidies, and of Foreign Judgments in Civil • guidelines to encourage the or Commercial Matters (the If the Singapore Mediation promotion of voluntary eco- Judgments Convention) was Convention and/or the Judgments labelling programmes and finalised in July this year. Convention is taken up by associated mechanisms. It addresses the difficulty New Zealand and its major trading faced by parties with cross- partners, it has the potential While this may be seen as a small border disputes when a to reinvigorate international beginning, it is a heartening judgment obtained in one mediation and litigation, and example of small and medium- jurisdiction needs to be influence how international sized countries getting together enforced in another. The commercial disputes are resolved. and taking a bold step forward Judgments Convention to develop new multilateral regulates the enforcement of rules. The initiative will be open foreign judgments by state to other WTO members to join, parties. Currently only Uruguay if they are able to meet the has signed, but others will join. required commitments.
9 Daniel Kalderimis, “NZ exporters must front up to Govt with overseas trade problems”, 11 December 2017: www.chapmantripp.com
International trade TRENDS AND INSIGHTS December 2019 HOME 14 Kiwi exporters
Despite the general global volatility, a recent survey found more than half of New Zealand exporters remain optimistic their orders will increase in the next 12 months.10 We thought we would take the opportunity here to highlight the stories of three Kiwi businesses who are showing that success on the international stage remains entirely possible and that there is every reason for continued optimism.
New Zealand King Salmon The company also continues to innovate with pet food and burley products, which allow it to use the Recipient of the ‘Inspiring Preference for ‘whole fish’. An exciting development this year was the New Zealand’ award at the 2018 New Zealand successful launch of its premium pet brand, Omega International Business Awards, New Zealand King Plus, on the online pet platform Boqii.com, selling Salmon epitomises the ‘New Zealand story’ – a high to the growing Chinese market. There are also plans quality natural product that meets the needs of to launch in South Korea, another pet food market modern consumers, a strong sense of environmental showing strong growth. responsibility, innovative practices, and commitment to community. The company’s key product, King New Zealand King Salmon monitors the global salmon (also known as Chinook) is unique, making up economic situation and recognises the importance only 0.7% of the world’s farmed salmon population. of spreading its markets, but to date the only Not only is it rare, but this species produces some real constraint on sales has been a limited supply of the world’s premium salmon. New Zealand King of salmon rather than demand-side factors. The Salmon produces just over 50% of the world’s supply company is progressing towards open ocean farming, of this species, and through its scientific breeding a move that, if successful, would significantly expand programme, has created especially desirable taste, production possibilities. The benefits of increased texture and nutritional characteristics. aquaculture production were recognised in the recently released Government Aquaculture Strategy Based in the top of the South Island, the company which acknowledges the potential for the industry to exports around 55% of its product. Its largest market be a $3b industry by 2025. is North America, but sales in China have doubled over the last year, and are strong in other markets including Japan, Australia, Hong Kong and Singapore. As with many New Zealand-based businesses, New Zealand King Salmon has found success overseas by focusing on a premium product and playing into a niche market. The majority of its fresh product, for example, is sold into the food services sector, directly to high- end restaurants.
10 DHL, “2019 ExportNZ DHL Export Barometer”, October 2019
International trade TRENDS AND INSIGHTS December 2019 HOME 15 Trends and signs of fair weather (continued)
QualityNZTM The company has developed a Indian consumers are also, in successful business supplying common with others around the QualityNZ, a niche supplier of high luxury hotels and the retail world, increasingly interested in quality food and beverages to sector, with plans to expand into the importance of factors such India, has proven that exporters e-commerce. CEO Geoff Allott, as nutritional value, food safety, can be successful even in a a former New Zealand cricketer, sustainability, animal welfare, and difficult trading environment. notes that New Zealand is well traceability. While New Zealand New Zealand does not have a FTA regarded in India where we has a global reputation for high with India to ease access and, share some significant historical quality products with these although a WTO member, India milestones (including the Indian characteristics, marketing has some of the world’s highest troops that joined the ANZACs in remains critical. QualityNZ has tariffs along with an array of non- Gallipoli), cultural values, and of focused on being in-market tariff barriers. We have yet to see course, a love of cricket. (through a subsidiary) so it can whether India might be persuaded understand the Indian consumer to join RCEP, but in the meantime, better and develop meaningful QualityNZ has seriously invested relationships with customers. This in time and resources to ensure allows the company to tell the that it doesn’t have to rely on the New Zealand story and highlight success of those negotiations and all aspects that contribute to is starting to see that investment making its products world class. paying off.
International trade TRENDS AND INSIGHTS December 2019 HOME 16 Trends and signs of fair weather (continued)
There are pros and cons to every Perhaps somewhat ironically, market. One of the benefits of the Allott suggests that – besides Indian market is its proven ability tariff reductions – the biggest to maintain economic growth, such benefit of India joining RCEP as during the 2008 global financial would be to highlight to crisis, while the rest of the world New Zealanders just how large the struggles. QualityNZ has good opportunities in India are. Many reason to believe it will continue New Zealand businesses have to offer serious opportunities no idea how rewarding the Indian for New Zealand products so market can be, regardless of the long as exporters take the time existence of an FTA. to understand the market and maintain a long term perspective on returns.
International trade TRENDS AND INSIGHTS December 2019 HOME 17 Trends and signs of fair weather (continued)
A44 A games studio that relied on The video game industry has sales to a New Zealand audience proven itself resilient in tough Kiwi exporters have much to offer wouldn’t last long in the market. In economic times, with strong sales from our bountiful land, but that this sense, it is just like many other even during the global financial is far from the whole New Zealand New Zealand businesses – our crisis. There is every reason to story. Our digital businesses are dairy industry being a case in point think that, no matter the swirling proving they can compete with with 98% of production being global uncertainty, people will the world’s best. One of these is exported. Where video games continue to want the affordable A44, an independent games studio have an inherent advantage is and exciting entertainment based in Wellington. A44 aims that, unlike goods that have to be provided by video games. to create video games defined physically shipped to consumers, by emergent and authentic global digital platforms make The gaming industry is forecast multiplayer experiences, featuring games accessible to a truly global to be worth over $144b in revenue tight, skill-based combat and audience. Ashen launched on by 2022 (more than the film immersive, captivating worlds. Its a subscription-based service industry). A44’s success shows the first game, Ashen, a third person with tens of millions of users way for New Zealand to compete action role-playing game (RPG), each month. The game was with global studios and take a slice had over one million downloads launched in over 10 different of this revenue. less than a year after its release. languages, making it accessible There is a distinctly New Zealand to essentially every major feel to Ashen with its rolling market simultaneously. hills, valleys and mountainous backdrops. While not inspired This doesn’t mean that there aren’t by any specific location, the trade-related issues in the sector. game is undeniably a product of One issue facing A44, for example, the New Zealand environment, is the strict government scrutiny which only enhances its ability to of gaming content in China. Yet, captivate audiences. the country is slowly opening up to more Western games, and A44 has sought investment from China that will hopefully assist in making inroads into what is a potentially enormous market.
International trade TRENDS AND INSIGHTS December 2019 HOME 18 Trends and signs of fair weather (continued)
International trade TRENDS AND INSIGHTS December 2019 HOME 19 Making sense of it all
Ongoing uncertainty will be a key theme as we head towards the 2020 US presidential election. But, as we have highlighted above, we shouldn’t conflate uncertainty with a conclusion that the multilateral system is at risk of imminent collapse.
Business leaders might well be losing patience with What then will success look like? Some elements are the WTO, and wondering whether the multilateral obvious. Revival of the WTO AB, or at the least, some system is losing relevance. But in the face of slowing form of workaround that keeps the system of dispute global economic growth and rising nationalism, the settlement intact as far as possible. Conclusion of multilateral system is more important than ever. a WTO agreement on fisheries subsidies. Signing of RCEP which, while it may not deliver the economic It is also important to recall the multilateral system punch that the sum of its members (even absent supports regional and bilateral agreements. Most India) would portend, is nevertheless of symbolic of these agreements, such as CPTPP, are based on significance and creates a platform for further WTO provisions – if those provisions are not being integration. It may also involve further development honoured, then the very foundations of those regional of an inclusive trade strategy based on the outcome agreements become weak. of the Trade for All process.
In the current environment, a high degree of effort will For New Zealand businesses, just like those profiled be required by governments to keep the multilateral here, it will involve having the confidence to get out system afloat and set a course for the future. There into the world and get on with business – to innovate may be fewer highly visible success stories, but using their incredible creativity, promote ethical and this doesn’t mean there won’t be successes, even if sustainable business practices, and use personal success in 2020 and beyond looks different – and less relationships and New Zealand’s enviable reputation ground breaking – than it did in 1994. to find niches where business can flourish amidst the global maelstrom.
International trade TRENDS AND INSIGHTS December 2019 HOME 20 Chapman Tripp’s international trade specialists
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Our experts know what it We work with governments, We have the largest presence takes to operate successfully regional bodies, regulators, of any law firm in New Zealand’s in international markets, and development partners, capital, Wellington. As a to trade with New Zealand. developers, international banks, result, you’ll benefit from We’ll help you to successfully investors and private sector our extensive knowledge of capitalise on your trade and businesses in New Zealand, the relevant government policy investment opportunities. Pacific and further afield including and procedures, including for in Asia and the Americas. As well exporting controlled goods, Chapman Tripp provides a as our core international trade trading with sanctioned dedicated service for international and investment expertise, we entities, and obtaining overseas trade and investment law as part advise on public international investment consent. of our broader international law law issues and comparative practice. Our lawyers, including regulatory reform. former New Zealand government negotiators, have diverse international law experience, with particular expertise in international trade, international arbitration and investment law.
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